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The UK-EU trade deal: our early analysis of what’s included

News of a UK-EU trade deal meant a sigh of relief for many businesses, marking the culmination of four years of negotiations - the last 12 months of which on this particular free trade agreement.

The vast majority of the deal content has been widely anticipated and planned for by business for some months. The publication of both sides’ negotiating mandates early in 2020 at least made it clear what the best case scenarios could be. The EU sought to protect the fundamental freedoms of its single market while the UK prioritised limiting the erosion of sovereignty through its international obligations. In both respects each side can claim to have achieved their objectives.

Our specialists across Deloitte are examining the full 1,246 pages of legal text according to each chapter. Unpacking the precise detail of the agreement will take some time, however the most notable inclusions are:

  • Tariff-free, quota-free trade in goods between the UK and EU. This goes further on tariffs than the EU has before in an FTA and is very good news for business, particularly those in high tariff sectors such as food and agriculture.
  • Rules of Origin which recognise both UK and EU content as “originating” (known as full bilateral cumulation), with a six year phase-in period for electric cars, allowing the UK time to build up qualifying components. There are also helpful measures which permit businesses to self-certify as having met origin requirements and to provide a single statement of origin for multiple shipments over the course of a year. Outside the FTA the EU has also said statements of origin can be made from day one with the detailed proof not being required until 2022.
  • Minimal cooperation has been agreed in sanitary and phyto-sanitary (SPS) measures beyond default WTO agreements. Each side will maintain autonomy of their animal and plant health standards with periodic reviews taking place through a new SPS specialised committee.
  • Mutual recognition of Authorised Economic Operator status and agreement on managing “roll-on, roll-off” trade at ports will facilitate a somewhat more straightforward process for the transport of some goods, particularly through Dover-Calais. There is no requirement for international permits for road haulage, and limited cabotage arrangements where drop off and pick up can be made in the EU.
  • In principle, service providers will not need to establish a local presence to trade within each other’s markets – and they will be able to avoid economic needs tests, residency requirements and a range of other non-tariff barriers. However, there are very lengthy reservations listed to these headline provisions. The parties have agreed ‘national treatment’ to prevent discrimination between nationals and ‘most favoured nation’ provisions to ensure the treatment of service suppliers keep pace with either party’s future FTAs.
  • There is not much in the FTA on financial services, and what there is, is very much in line with previous precedents. However there is a separate joint declaration where both sides agree to try and reach an agreement on regulatory dialogue and stability around equivalence decisions in future.
  • Business mobility rights have been agreed (e.g. attending conferences, seminars, meetings) for short-term stays, permitted for 90 days in any 180 day period. Intra-corporate transfers (with spouses and dependents), contract and self-employed working are also supported. Travellers will otherwise rely on the rules of individual member states for the right to work as the free movement of people ends.
  • The agreement contains some modern provisions on data, including a ban on localisation requirements, commitments to protect personal data, support for electronic signatures and continuing to provide open government data. There is a separate bridging agreement which will maintain personal data flows from EU to UK for up to six months until an adequacy decision is reached.
  • There is wide-ranging protection and enforcement of intellectual property rights, including patents, trademarks and designs, at least in line with existing international agreements.
  • The agreement is limited to adherence to international frameworks and cooperation in areas such as tax and debt recovery including VAT, customs duties and excise. UK autonomy on tax rates and rules is preserved.
  • The FTA includes provisions on public procurement processes largely built on existing WTO agreements, but extended to other sectors such as hospitality and education. The UK had previously refused to include a chapter on procurement in the agreement.
  • A comprehensive system, similar to one we have today, is established covering liability for social security contributions when working or living outside of home country, avoiding dual contribution situations. Reciprocal healthcare arrangements are agreed, similar to EHIC with medical treatment provided on travel.
  • The UK will participate in five EU programmes including the Horizon and Copernicus scientific programmes, and leave others – such as Erasmus, which will be replaced by a new UK scheme.
  • Provisions on security include the exchange of criminal records data through a new infrastructure which will replace existing real-time access to the European Criminal Records Information System (ECRIS) data; DNA, fingerprint and vehicle registration (Prüm) and extradition. However, the exchange of passenger name records is asymmetrical and UK law enforcement will lose access to the Schengen Information System (SIS) II system on wanted or missing persons. There are also some provisions on cyber security cooperation.
  • The deal includes agreement on a range of other specific topics negotiated alongside generic trade chapters, including on energy (continued access to EU internal energy market); logistics and haulage (continuity of haulage without permits); and aviation (comprehensive provisions amounting to up to fourth freedom of the air and cooperation on aviation safety). There are also specific provisions on telecoms, delivery services, chemicals, motor vehicles and medicines.
  • Arbitration of the agreement will be undertaken through a new Partnership Council and there will be no role for the European Court of Justice. Financial services are exempted from potential retaliation in future trade disputes.

What does this mean for business?

The deal provides business with much needed certainty and a more stable start to 2021 than leaving without a deal. That said, there is a lot of detail to go through and significant change to the trading landscape of the future that should not be underestimated.

Most of the immediate practical changes are needed in any event and have been widely presented, including in lengthy guidance documents released through the UK government’s website and by HMRC. Although many called for an implementation period as part of this deal, nothing was agreed so the immediate changes include:

  • A return to full EU border formalities from 1 January 2021. Goods entering the EU from the UK will require customs declarations to be completed, including proof of origin (without which duties could become payable). Goods entering the UK from the EU will be subject to a phased implementation of border controls over six months.
  • Specific arrangements for Northern Ireland apply, including the application of EU customs duties applying to goods entering from Great Britain deemed “at risk” of entering the EU.
  • There is treatment of the UK as a third country for regulatory purposes by the EU, requiring businesses to undertake additional processes for EU and UK approvals for product and manufacturing standards. This is especially the case for the food items which will be subject to the EU’s SPS rules. Some food items, such as raw meat, will not be permitted at all in future.
  • There is a loss of automatic market access into the EU’s Single Market for services, particularly for UK regulated services firms which may need to establish an EU subsidiary in some countries which have reservations within the FTA.
  • No new recognition of professional qualifications, even though a minimal framework, is included in the FTA – on the positive side, grandfathering provisions originally agreed in the Withdrawal Agreement can be utilised.
  • There are changes to the way VAT and withholding tax are applied, including in some cases payment of VAT at the border, loss of simplifications and additional registrations or administrative procedures apply.
  • The FTA is good news for UK trade with Turkey, which would have defaulted to WTO terms without a UK-EU deal because of the constraints of its own customs union – this continuity agreement was concluded this week. Agreements covering 99% of trade previously conducted through EU FTAs have now been concluded by the UK government, giving welcome continuity to business. Only those trading goods with some African nations will need to consider their tariff and market access position.

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